The paper discusses the stylised problems relating to water and irrigation in India and argues that most of the inefficiencies, misuse and environmental damage have their roots in the mispricing of water and electricity. Since the only kind of subsidies thus far used is price based input subsidies they end up distorting the allocative prices, from which the other distortions follow. The problems of the sector can be overcome by changing the method of subsidisation. Converting price based or tariff subsidies to direct subsidies and endowments with improved tradability would solve most of the problems in the water and electricity sectors. Administrative and managerial initiatives by themselves would not succeed without this crucial tariff and subsidy reform. Such reform would also result in political capital for its initiators, and should make private and public financing of water (and electricity) projects possible. This study, unlike many previous diagnostic studies, has been led by the need to find solutions to a fast deteriorating situation: rising implicit subsidies, movement away from optimal use in a major way, huge distortions and resulting social costs. Key elements of the recommendations in the study are: (1) The right to water of a state to the rivers and other water bodies should include the right to trade i.e. to sell the water, (2)The irrigation sector at all levels to be opened to the private sector through frameworks for various kinds of private finance initiatives, (3) All subsidies whether for electricity or water would have to be direct subsidies delivered to the farmer, (4) An identification exercise should be carried out that allows the endowments of a farmer to be fixed, so that he can be issued electricity coupons and water coupons periodically, (5) Current subsidies in irrigation to be converted to endowments in units of water and provided to the farmer in the form of coupons with which (as also with cash) he can buy water and even sell the same, (6)The benefit of the difference between the regulated retail prices at which water to be supplied to the farmer and the retail water market prices in the command area to go to the account of the farmer.
Some Key Issues In Policy, Pricing, Regulation, And Financing Of Irrigation Development In India Today
Author : Sebastian Morris